If you are a person that is self-employed or maybe you know someone that is self-employed, then this post may be beneficial for you or someone you know. It is important to understand that CPAs are great people that often have several clients and because they are human, they may even forget to add a deduction or two so, it is in anyones best interest to understand at least a few of their options so they can at least be sure theyre receiving a few of the benefits of being self-employed. Always remember that you are responsible for your tax return and that is why your signature is needed.
Self-Employment Tax Deduction is a great deduction. Here is how it works, when your employed for yourself, your tax are 15.3% and must be paid by all those that work for self, 2.9% are the Social Security tax that is comprised from Medicare and social security taxes which is 1%. If you are a person that works for a company then you get a W2 and your employer pays ½ of your Social Security tax which is 7.65% and if you think about it this alone acts as a reason to not be self-employed. To be able to compete with this the IRS lets you adjust your gross income by half of your self-employment tax.
There are deductions for Health Insurance. Your income tax can be reduced with this deduction but not your self-employment tax. If you are one of those people that paid for your own health insurance you can deduct the premium as long as you didnt receive a W2 or you werent in a group health plan that maybe a spouse has through their job. In order to figure out what your deduction will be you will need to subtract 50% of your income earned from self-employment tax, deduct any contributions made to an IRA and whatever is left is your deduction for. In simpler terms, if after you have totaled up everything and you made $2500 but your yearly premium was $3000 then you can deduct the entire $2500.
Any office equipment that you have bought for your office can be used as a deduction. Now, over time we know that these depreciate but you should take advantage of the deduction and that is up to $250,000 a year in equipment. Keep all of your receipts for any equipment that you have purchased.
Most self-employed businesses have to network and go to meetings and other things of this sort and because of that these things can be used as a deduction as well. You are able to subtract up to 50% of your entertainment and meals as long as they were made for the purpose of business. Always, always keep your receipts and records of the whys and whens in the event that you are ever audited.
Hopefully you find these self-employed tax tips beneficial to you and always remember to keep all your receipts.